Black Monday in China

So unless you are one of the fortunate few who are still lucky enough to be in holiday mode you will have heard about “China’s Black Monday”, when the Chinese stock market experienced a drop of around 8.5% in only a few hours. This has had a knock-on effect across global markets and we also saw an historic drop in the Dow Jones of over 1,000 points at one stage yesterday. This led to a lot of panic selling where large volumes of investors dumped stocks without taking time to properly consider what was happening in the market.

We have spoken to a number of leading fund managers over the last 24 hours to get an understanding of how they are viewing yesterday’s volatility. Here are some of the main points we discussed:

China’s recent devaluation of Renminbi was an unexpected move which has led to concern of further devaluation over the next year

Economic data in China has shown a relatively sharp slowing in growth (albeit nowhere near recession)

There has been a lot of focus on upcoming US interest rate rises and when they might happen, most believing a September rise was imminent and seen as negative

Most still expect a rise in interest rates by the end of this year from the Fed, but the expected pace will be gradual

The data available from the US supports an increase and if increases are gradual and are orderly over time, there shouldn’t be a negative effect on markets

Very important to point out that recent market volatility in prices has occurred in quiet Summer markets with low liquidity and this would tend to exaggerate price movements

The big question is whether this is a short-term correction or the end of a 6 year + bull market?

Most fund managers believe that this is a correction that has been anticipated for the last few months

This view is supported by the fact that underlying economic fundamentals have been relatively firm in developed markets

The obvious question for most investors is: ‘Do I sell now or hold tough?’ The truth is that there is no one-size-fits-all answer, a lot of factors will need to be considered when making a decision. However, at Metis Ireland what we have been advising our clients for the last year is that having a diversified portfolio and taking the long view are keys to any successful investment strategy. Have a read of our recent blog on risk based funds which explains the importance of diversifying your investment. You can also read our Investment Philosophy here, where we have been emphasising for quite a while now that ‘Time’ not ‘Timing’ is vital in neutralising the effects of market volatility.

So if you have a portfolio that is well diversified across a range of asset classes and you are willing to invest over the long term (10 years +) such as through your pension, then yesterday’s events shouldn’t affect your investment strategy. You should probably hold tough, as trying to time when to come out of the market and go back in is ‘Mission Impossible’. If you come out today you might sell at a low price and miss out on future market gains.

In summary, our advice to our clients from The Metis Ireland Team is to sit tight for now. It is really important to stick to your investment plan. Of course if you want to discuss your investment portfolio with us please do not hesitate to contact the team on 061-518365 or at info@metisireland.ie.

The Metis Ireland Team

Metis Ireland Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland. All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.